Sihuan Pharma prices second largest healthcare IPO this year

The Chinese manufacturer of cardio-cerebral vascular drugs raises $741 million by pricing its shares at 26.7 times next year's earnings, making it the most expensive new stock to list in Hong Kong this year.

Sihuan Pharmaceutical, a Chinese manufacturer of cardio-cerebral vascular drugs, has pulled off another popular initial public offering in Hong Kong despite a fairly dear price, bucking an earlier trend of companies needing inexpensive valuations to be able to attract a decent amount of funds.

The company raised HK$5.75 billion ($741 million) after pricing its shares at HK$4.60 apiece, the top end of the indicated range. The price translates into a price-to-earnings (P/E) ratio of 26.7 times, based on projected earnings for 2011.

That is more expensive than L’Occitane, which is said to be the most expensive new stock on the Hong Kong exchange so far this year. The French skincare product maker, which listed in early May, priced its shares at 23.7 times estimated 2011 earnings.

Sihuan's high price was supported by a hefty retail subscription that triggered a full clawback, increasing the size of the retail tranche to 50% from 10% originally. Hong Kong retail investors ordered more than 400 times the shares initially available to them, while the institutional tranche was more than 20 times covered, according to a source.

Sihuan offered 25% of the company's enlarged share capital in the form of 1.25 billion new shares, at HK$3.88 to HK$4.60 each. The deal comes with a 15% greenshoe option, which, if fully exercised, will allow the company to raise as much as $852 million. However, even without exercising the greenshoe option, it is the world's second largest healthcare IPO so far this year, sources said.

Sihuan, in which Morgan Stanley Private Equity Asia (MSPEA) owned 10% before the IPO, de-listed from the Singapore Exchange (SGX) in December 2009 through a privatisation arranged by MSPEA. The company first listed on the SGX in March 2007.

It is the second Chinese medical company in the past month to transfer its listing from another stock exchange to Hong Kong. China Medical System, a pharmaceutical product marketing group, delisted from London’s Alternative Investment Market (AIM) in September and raised $129 million ahead of a Hong Kong listing in the same month.

Also in September, the Hong Kong stock exchange became the home of first-time listing candidate MicroPort Scientific. The Shanghai-based medical equipment maker raised $198 million ahead of its listing on the exchange.

Prior to launch, Sihuan had secured $190 million from six cornerstone investors, which is believed to have added some lustre to the transaction and helped boost investor confidence. Among the cornerstones, billionaire investor George Soros agreed to invest $40 million and China Life Insurance invested $50 million.

Hillhouse Capital Management purchased $45 million worth of shares, while Yunfeng Fund, set up by Alibaba.com's chairman Jack Ma, and Value Partners each invested $20 million. CCB International Asset Management subscribed to $15 million worth of shares.

Sihuan's trading debut is set for October 28. Morgan Stanley and UBS were the joint global coordinators and bookrunners for the deal.

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